① Due to the surge in prices of by-products such as gold and silver, the production costs for copper at Southern Copper and Vale SA have turned negative; ② Southern Copper's cash cost per pound of copper produced in the first quarter was negative $0.11, compared to positive $0.77 in the same period last year.
Cailian Press reported on May 2 (edited by Zhao Hao) that two major copper industry giants, $Southern Copper (SCCO.US)$ (Southern Copper Corp) and $Vale SA (VALE.US)$ (Vale SA), are facing a rare situation: the soaring prices of by-products such as gold and silver have turned their cost of copper production negative.
According to the 10-Q filing published on Southern Copper’s official website, in the first quarter of this year, after deducting revenue from by-products, the company’s cash cost per pound of copper produced was negative $0.11, compared to positive $0.77 in the same period last year.
Source: Southern Copper 10-Q Filing
This means that even without accounting for the selling price of copper, Southern Copper can achieve profitability solely from mining copper ore. Vale SA's copper production costs have also turned negative under the 'all-in cost' measure, while other major producers remain at positive costs.
This rare phenomenon reflects the significant rise in prices of metals co-existing with copper in large deposits, such as gold, silver, molybdenum, and zinc. Over the past year, silver prices have more than doubled, while gold has risen by about 40%.
As the mines operated by Southern Copper and Vale SA contain multiple metals, these two companies derive significantly higher revenue from by-products compared to most peers, allowing them to capture the full benefits of copper sales thanks to the 'windfall' from by-products.
Raul Jacob, Chief Financial Officer of Southern Copper, told analysts on Thursday (April 30): 'Negative cash costs mean that our $1.2 billion in by-product revenue has fully covered the production costs of copper.'
In addition to the by-product factor, Southern Copper benefits from its large-scale integrated operations, which inherently result in a lower base cost structure.
Although the conflict in the Middle East disrupted the supply of sulfuric acid used to separate metals from ores, Southern Copper and Vale SA are net sellers of this leaching agent, which has helped their base metal businesses partially withstand inflationary pressures.
Editor/Rocky